Network Economics

Economics

By the Project for Excellence in Journalism

Pinpointing the economics of network TV journalism becomes more difficult as the news operations become smaller parts of larger and more diversified conglomerates with multiple media platforms. Nevertheless, the evidence suggests that news remains a significant contributor to the bottom line.

This year, three trends stand out.

While only one of the three nightly newscasts, ABC’s, reported increases in ad revenue in 2004, the latest year for which complete results are available, partial-year data for 2005 hinted that all three would see growth by the end of the year.

Mornings were even better. All three morning shows saw double-digit increases in ad revenues in 2004, and partial-year data for 2005 suggest that would continue.

In prime time, NBC’s “Dateline” (along with that network’s entire lineup) was suffering, but the various prime-time magazines at its rivals were showing robust growth, especially on CBS (along with that network’s line-up generally).

Determining the operating profitability of the network news divisions is difficult to anyone outside the corporate accounting offices. Figures are difficult to find and even more difficult to verify. For the purposes of this report, we have attempted to track a more concrete aspect of the network news — advertising revenue. As we have noted before, however, using those numbers is not without its own problems. Networks bundle advertising between programs, making it difficult to allocate figures. Even so, the figures still offer some independent data to consider.

Nightly News Revenues

In our report last year, an analysis of partial-year data suggested that the 2003 increase in advertising revenue for the Big Three evening news broadcasts would reverse. With complete figures for January 2004 to December 2004 that was true for only two of the three. Advertising revenues for NBC’s “Nightly News” and CBS’s “Evening News” declined. “World News Tonight” on ABC continued the rebound it started in 2002 and, once again, assumed a No. 2 position in advertising revenue totals among the three programs. The revenue totals are much closer to one another than the audience sizes and, in contrast to other news programming, invite more direct economic comparisons between networks.1

In 2004, the last year for which we have complete data, figures from the research firm TNS Media Intelligence show that NBC maintained its No. 1 position, earning some $155 million during the calendar year. That was a decrease of 4% from the year before. ABC evening-news ad revenue was up 1% to $151 million. CBS, which had been steadily increasing its advertising revenue since 2001, stumbled in calendar year 2004, declining 4% to $149 million. But that only brought revenue back to roughly where it was in 2002.

An examination of TNS data through August 2005 gives an admittedly rough idea of what took place with advertising revenue over the whole calendar year. And the hint is that NBC may have fallen into third place for ad revenue, even while retaining first place in audience size. According to TNS, CBS and ABC were about equal with some $113 million. That would project to roughly $169 million by year’s end. NBC’s evening newscast had fallen behind its competitors with $110 million, which would project to $165 million. Why would the No. 1 audience show be in last place for advertising revenue?

Part of the answer probably has to do with the fact, discussed in earlier years, that so much network advertising today is bundled across more than one program and even one platform. An advertiser might be sold time on the nightly news along with other NBC or even MSNBC programs. Thus, untangling how revenues are allocated across shows can be difficult. The data are the best available, but they should be taken for what they are, especially the projections for 2005.

Added to that, ad bundling may tie NBC News’s fortunes somewhat more to the larger picture for NBC TV, which has lost its prime-time leadership to CBS and ABC, dragging down its advertising revenues.2

Over the six calendar years between 1999 and 2004, ad revenues for NBC’s “Nightly News” had dropped 14%, based on the TNS data. ABC’s “World News Tonight” advertising revenue dropped 5%, while those for CBS’s “Evening News” climbed 8% (though still remaining on the bottom of the stack). None of those declines or increases took place in a direct fashion. The trend lines, like so many when discussing statistical data for the Big Three network news programs, are rocky and tend to move in cycles. Over all, though, in ad revenues at least, CBS tends to be on the biggest upswing and NBC on the biggest downturn.

Even with a decline in viewership, and audiences that are notably smaller than their evening news counterparts, the morning programs continue to be the economic powerhouses of the news divisions. The reason is fairly simple. They are on for two hours (three hours in the case of NBC’s “Today Show”), versus 30 minutes for nightly news.

The morning programs also feed important revenues to the networks’ owned stations and other affiliates, compounding their economic importance to their companies.

In calendar year 2004, according to data provided to the Project by TNS, “Today” and “Good Morning America” continued the horserace that has been going since we began collecting data in 1999. CBS remains a distant third in advertising revenue but, like NBC and ABC, continued its climb.

In 2004 (January to December), “Today” took in $552 million in advertising revenue, up 17% from 2003. The shorter “Good Morning America” took in $528 million, up 13%. CBS’s “Early Show” brought its advertising revenue up 14% to $249 million. It is important, however, to keep these figures in perspective. “Today” airs for three hours each weekday, while GMA and the “Early Show” air for two. If those advertising revenue figures are compared by the hour, the two-hour “Good Morning America” actually earns more per hour than “Today.” In fact, calculations using data from TNS indicate that in value per hour, “Good Morning America’s” revenues may actually exceed those of “Today” by more than 40%.3

Partial data through August 2005 suggested that by year-end, GMA might overtake or at least equal “Today” in absolute advertising revenue. As of August, “Today” had taken in some $380 million, slightly below “Good Morning America” with $381 million. That projected to $571 million in advertising revenue for both programs by the end of calendar year 2005, more than three times the totals generated by their networks’ shorter, yet more highly rated evening newscasts. CBS’s “Early Show” had advertising revenue of $181 million through August, which would project to $272 million by the end of 2005.

(Again, however, the networks internally have different numbers than TNS, and insiders say that NBC’s accounting shows “Today” ahead of GMA. All we can safely rely on are the numbers that are public.)

Looking back, the three networks have all come to expect large yearly revenue increases in their morning programs. According to TNS, between 1999 and 2004, each of the morning news programs improved advertising revenues by well over 50%. Indeed, with a 64% increase over that time, ABC’s “Good Morning America” was the only one of the top three programs not to improve by more than 75%. “Today” climbed 78% while the “Early Show” (while operating from a much lower baseline) improved 87%.

The length of the morning shows is the most obvious factor in their ability to generate higher revenue than their evening news counterparts, with roughly half the viewership. Data from Andrew Tyndall reveal that in 2004, the morning shows averaged about four times as much time for commercials and network promos on weekdays. (Since they are four times the length (not counting the third hour of Today) that means the ratio of editorial to advertising is similar.) 1

In 2005, Tyndall tracked commercial time on the three morning shows over the course of one month. According to the data, commercial time increased slightly between the first and second hours of “Good Morning America,” from 17.2 minutes to 17.6 minutes. It similarly increased on the “Today Show,” from 16.6 minutes in the first hour to 16.8 minutes in the second. Commercial time between the first and second hours on the “Early Show” dropped from 17.6 to 17.2 minutes. Commercials make up just over 25% of the time of each morning program.

The economic picture for prime time news magazines appeared to be improving as well. Here, too, it is impossible to view advertising revenue as an absolute measure given ad bundling and other strategies, but there are some signs that surviving programs have benefited from the thinning of the herd since the category boomed in the late 1990s.

NBC’s “Dateline” is now the last of the magazine franchises producing two editions each week. Unfortunately, according to data from TNS, “Dateline’s” other distinction is the continuing decline of its advertising revenues. Over calendar year 2004, it earned $232.3 million in advertising revenue, down from $237 million in 2003, a 2% decline. But to keep things in perspective, that 2% is substantially less than the decline in the rest of NBC’s primetime schedule.

CBS’s “60 Minutes,” in contrast, climbed 21% in 2004 to $108 million in advertising revenue, from $89.3 million in 2003. Last year, we noted that some insiders suggested that the decline in “60 Minutes’s” 2003 advertising revenue and the apparent increase in the advertising revenues for “60 Minutes II” was caused by CBS’s decision to alter the ad rates for both broadcasts4 — in essence, boosting the new program at the expense of the flagship. That makes determining the size of “60 Minutes’s” rebound murkier.

Data from TNS shows that “60 Minutes II” (which alternated between being 60 Minutes II and 60 Minutes Wednesday and even changed its broadcast night) had a 12% decline in advertising revenue, from $70 million to just under $62 million. And while “60 Minutes II” was cancelled in September of 2005, a projection based on data from TNS indicates that the advertising revenues assigned to the program would have continued to decline.

The CBS News program “48 Hours Mystery” appears to be another sign of the network’s improving fortunes. The program’s advertising revenue has climbed 41% compared to calendar year 2003, moving from $55.7M to $78.5M.

Three things make up a magazine show’s ratings success, network officials say: program content, the lead-in show that precedes it, and the show’s competition.

CBS’s “48 Hours” has benefited here. NBC’s “Dateline,” especially on Friday nights, suffered because it was up against a big CBS hit, “Ghost Whisperer.”

“Nightline,” which had a revenue drop in 2003, regained some ground in 2004. Revenue increased from $69.5 million in 2003 to $75 million in 2004. Projecting to the end of 2005, it appeared that that figure would hold. (Most of the year, of course, was the older single-topic format for “Nightline.” The new program was launched in November.)

The case of “Nightline” deserves a moment for its implications about the economics of television journalism today, both in the move of Ted Koppel and a team of his producers to the cable channel Discovery and in their departure from ABC.

“If you want to do serious journalism in this country, this is the best place we could possibly find,” producer Tom Bettag was quoted as saying about Discovery.5 Something significant is at play here.6

Cable has a very different economic model from broadcast TV. Broadcast is financed entirely by advertising. Cable TV adds subscription fees to the mix —fees paid by cable operators and fees paid by individual households. Channels like Discovery that carry advertising often make half their revenue from fees paid by cable operators who want to include the channel in their system packages. Premium cable channels such as HBO are funded entirely by “premium” subscriptions paid directly by viewers.

Thus, any program that can tip the scales to make a cable operator treat a cable channel as indispensable can have huge financial value. Consider the impact the “Daily Show” with Jon Stewart had in raising the profile of Comedy Central.

In other words, a program that changes viewer perception of a channel can have a value in cable far beyond whatever ratings it gets for its own episodes. It can influence the brand.

In this sense, Koppel and Bettag may be doing more than finding a place to keep doing some documentaries. They may be trying to pioneer a new value for serious journalism elsewhere on television than where it currently exists.

If they are right, documentaries about major issues of the day, once a major element of network news departments but for so long their disappearing feature, could bring an economic value to cable.

That would represent a major change and add to the opportunity that Koppel, Bettag and their colleagues are pioneering.

Interestingly, Koppel made it clear that he thought the appropriate venue for this was not the traditional cable news channels (CNN, Fox News, MSNBC), which historically have not made a mark in documentaries. “I think there is a tendency on the part of some of the cable networks to be in a desperate race to be first with the obvious,” he said.7

Just as interesting is the fact that Koppel ended up at a standard cable channel, not a premium one. On a premium channel, where there are no commercials, a single program may be enough to tip a nonsubscriber into becoming a subscriber. How many people watch “Curb Your Enthusiasm” or “Deadwood” on HBO because they first subscribed to get the “Sopranos”? Koppel’s decision suggests that documentaries could do more to help a channel’s negotiations with cable operators than as a marketing tool to attract individual viewers.

The other implications of the “Nightline” situation relate to the reasons ABC wanted to scrap the program’s format, which led to Koppel’s leaving.

ABC executives had said they wanted a program that would appeal to younger audiences, something hipper and faster-paced, and that if “Nightline” couldn’t do that, it might be replaced with an entertainment show. Implicitly, the network is arguing that every program in network TV is now viewed as its own profit center. Whatever can maximize revenues in a given time slot is the goal. That was the signal that Disney sent in 2002 when it courted but failed to lure the comedian David Letterman to replace “Nightline.” Disney executives made it plain that if Letterman could earn more money for the network in that time slot, he was preferred.

In other words, while there are economies of scale, the notion that the sum of a network is greater than its parts is now much diminished. It used to be that way, when the government viewed broadcasters as public trustees who had an obligation to present news even if it was a loss leader. In the era of deregulation, that is no longer a concern. Koppel himself made it clear that that was his understanding now. ABC had once allowed him to do four prime-time documentaries a year, just as it allowed its prime anchor, Peter Jennings, to do several. “They were indulging me,” Koppel told the Washington Post upon signing with Discovery. “They were indulging Peter.” Tom Bettag then added, “And the days of indulging are just about over.”8

Adding to that is the excessive concern at the networks, Koppel and Bettag argued, with luring younger viewers because of the Madison Avenue conviction that they are the most valuable audience.9

Aside from what they say publicly, is this really how networks now operate? It is difficult to argue to the contrary. Adverse publicity might keep a network from changing its programming if it thought it would cast management negatively, be perceived as hurting credibility, or hurt the stock price. News accounts at the time quoted Letterman’s people as saying he did not want to be seen as the guy who killed “Nightline.” Would such negative publicity dissuade a network from killing a news program today?

That might be the case for only one particular program — the nightly newscast. A network might be loath to be the first to abandon airing that one even if it thought it could make more money producing something else in the same time slot. Given that all three networks run the evening news, the first one to kill the program would probably generate significant bad publicity and risk a public backlash. Decline or no, the combined evening news audience is still more than 25 million viewers.

But that might be the last exception now.

A second argument also floated above the “Nightline” case: Were Koppel and Bettag saying that network broadcasting in general was no longer a place where viewers could find serious long-form journalism at all — in any time slot?

That notion is probably an exaggeration.

Koppel himself never said that outright. The closest he came was in the New York Times, where the reporter Bill Carter noted: “Mr. Koppel said that no broadcast network would be interested in the kinds of programs he and his team wanted to make, which he said would occasionally take the form of one-hour documentary-style special followed by a two-hour town-meeting discussion. If he asked for three hours of prime time on ABC or even on a cable news network like CNN, Mr. Koppel said, he would have no chance of success. ‘That kind of programming simply doesn’t fit anymore’ on network television.”10

Certainly there isn’t much in the way of long-form documentaries, examining significant topics or events of the day, on commercial broadcasting. What is wrong with the health care system? Are drug companies helping or hurting the situation? Are the new Medicare reforms working? Is the situation in Iraq getting better? What effect will the war have on the U.S. economy?

Commercial broadcast television news was once an occasional place for just that kind of broad stock-taking. It has not been for some time. Partisan documentary theatrical movies, on the other hand, are now more popular than ever.

But while such programming is diminishing, it is probably unfair to suggest that there are no serious longer pieces on the networks at all of the kind to which “Nightline” used to devote 20 minutes or so. As we noted in earlier content reports such work does occur on programs such as “60 Minutes,” Sunday Morning and occasionally on certain topics by certain reporters on other prime-time magazines. It is shrinking. It seems too broad to say it is gone.

Footnotes

1. The nightly news programs on all networks run for half an hour and (in general) air at the same time. That allows for easy side-by-side comparison, but it will soon change. ABC has changed the model by airing three live over-the-air broadcasts in different time zones and one live Web-based edition.

A year earlier all three networks had seen revenue increases, NBC the biggest. Between 2003 and 2004, indeed, NBC enjoyed a 13.5% increase (climbing to $5 billion in 2004, up from some $4.5 billion the year before). Both CBS and ABC experienced revenue increases that year as well, but not nearly at the level of NBC. Several factors have most likely contributed to NBC’s abrupt slide. First, the network’s average prime-time viewership (9.1 million) is lower than either CBS (12.9 million) or ABC (10.3 million). Second, 2005 was not an Olympic year, so NBC was not able to capitalize on the cross-program draw the games offered in 2004 and will presumably offer the network in 2006. What remains to be seen is whether a rally for the network as a whole will benefit “Nightly News.” (John M. Higgins, “CBS: In the Money,” Broadcasting & Cable, January 8, 2006.) 3. To arrive at this estimate the total annual advertising revenue of a program was calculated by dividing that total by 12 months, then by an estimated 20 days per month, then by the number of hours a program ran, then by 60 minutes.

4. In the State of the News Media 2005 editions, we noted that 60 Minutes’ advertising revenue had dropped, from $97.6 million in calendar year 2002 to $89.3 million in 2003.

6. Koppel also agreed to do commentaries for National Public Radio and for the New York Times, both outlets that probably reflect similar news values to those Nightline tried to uphold when Koppel hosted the program at ABC.